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Informist, Friday, Sept. 25, 2026

By Aaryan Khanna

NEW DELHI – Government bond prices recovered most losses after the auction result showed robust demand for the 10-year benchmark 6.94%, 2036 gilt, with substantial short sales being covered at the debt sale and in the secondary market, dealers said. Uncertainty about an end to the West Asia war kept investors on the sidelines before the weekend and led to a dip in prices towards the end of trade after bonds had recovered all losses.

The benchmark bond ended at INR 98.76, down from INR 98.84 Thursday. Its yield rose to 7.1194% from 7.1067% at the end of the previous session, ending at its highest level since May 20. During the day, the 10-year benchmark yield hit 7.1410, nearing its highest in 2026-27 (Apr-Mar).

The auction cut-off on the 6.94%, 2036 bond at 7.1450% was the highest cut-off yield for a 10-year gilt since April 2024. Still, the INR-98.58 cut-off price was better than what traders were expecting and in line with the median in an Informist poll. With the fresh supply of INR 340 billion absorbed and crude oil prices and US Treasury yields hovering at similar levels, gilt prices inched up in the latter half of trade, dealers said.

"We have seen some follow-on buying as well, which has led to yields moving 3 basis points from the cut-off," a fund manager at a life insurer said. "Since the auction went well, this was a good time for a reversal – we have seen the yield come down from 7.14% earlier this year. But it is difficult to foresee a rally from here as long as global cues are against us." 

Traders covered short positions and state-owned banks also likely bid aggressively, which helped the cut-off price at the auction, dealers said. State-owned banks likely bought INR 150 billion worth of the auction stock, they said. Short covering likely led to around INR 120 billion of demand, with the rest being absorbed by various investors looking to pick up the 10-year benchmark.

A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data Friday showed trades worth INR 207.23 billion in the 6.94%, 2036 gilt, up from INR 184.75 billion Thursday and INR 105 billion on Sept. 11. This is the highest for the 10-year benchmark bond since at least 2023 and the first time since Jun. 4 that the quantum of trades has topped INR 200 billion. The build-up in short sales pushed up the yield on the 10-year benchmark gilt to 7.14% in early trade Friday, matching its highest in 2026-27 (Apr-Mar). 

Bond prices were also supported by an intraday fall in Brent crude oil prices and US Treasury yields, dealers said. Brent crude oil futures for November delivery fell below $105 per barrel for a brief period. However, prices did not sustain at those levels. Meanwhile, US Treasury yields fell from the day's high, which supported Indian bond prices. The yield on the benchmark 10-year US Treasury note was at 5.18% at 1700 IST, down slightly from 0900 IST.

"There was no depth to the market today even after the auction (result)," a dealer at a private sector bank said. "I wouldn't read too much into the movement." Total turnover in the government securities market was INR 526.90 billion Friday, higher than INR 434.35 billion Thursday, data from Clearing Corp. of India Ltd. showed. The rise was typical for an auction day, dealers said. There were no trades using the RBI's e-rupee wholesale pilot Friday, as has been the case for several months now.

The 6.94%, 2036 gilt had fallen sharply before the auction result as traders feared the large supply may be absorbed at prices significantly lower than current market levels. A rise in the 10-year yield above 7.15% was also likely to trigger stop-losses for traders, dealers said.

Losses were limited in bonds of other tenures. Short-term gilts saw limited selling pressure as the five-year US Treasury yield was little changed, as were crude oil prices, from Thursday's level. Traders have already priced in a repo rate hike by the RBI's Monetary Policy Committee at its next meeting in October, dealers said.

Meanwhile, long-term bonds saw robust demand from life insurers for the second straight day. The 6.90%, 2065 gilt saw a spurt in volumes after falling sharply in early trade, reversing its losses and ending higher. Current levels were attractive for the long-term investors to lock in returns both through outright purchases and through banks via bond forwards and forward-rate agreements, dealers said.

OUTLOOK

Gilts are not traded on Saturdays. On Monday, bond prices may take cues from developments in the West Asia war and their impact on crude oil prices and US Treasury yields. The government's borrowing calendar for Oct-Mar, released after market hours Friday, is unlikely to have a directional impact on gilt prices but would lead to changes in relative value, dealers said.

The major takeaway from the release of the borrowing calendar was that the government had refrained from additional borrowing and the plan would be non-disruptive to the market, dealers said. At the same time, it allowed the RBI to continue selling short-term gilts via open market operations should the central bank choose to extend its auctions from September into October. The cut in the share of the 10-year bond's supply may help it outperform peers Monday, they said. 

The spread of the 15-year benchmark 7.06%, 2041 gilt over the 10-year benchmark 6.94%, 2036 gilt may rise to near 30 basis points from 16 bps Friday. The spread of longer-term bonds is also likely to increase, dealers said. Meanwhile, short-term gilts are unlikely to benefit from the reduction in the share of their supply as traders would fear upcoming OMO sales and rate hikes, at least until the next rate decision on Oct. 7, they said.

In line with market feedback, the government has raised the share of the seven- and 15-year securities in the calendar, while also reducing the share of bonds maturing up to five years due to the hefty redemptions already lined up in those tenures. The seven-year bond will make up 9.1% of the Oct-Mar calendar from 8.1% in Apr-Sept, while the 15-year bond will make up 17.6% of the issuance. This is the largest sequential increase, from 14.5% in the first half of the financial year.

Meanwhile, the three-year bond's share in the supply has fallen by 120 basis points to 6.9% in the second half. The five-year bond will also make up only 12.1% of the Oct-Mar issuance, down from 15.4% in Apr-Sept. The calendar gives the RBI room to conduct more open market operation auctions to sell gilts maturing in up to 2032, as it has done in September, bond market dealers said. This month, the central bank has announced OMO auctions to sell INR 1 trillion of short-term gilts.

After two calendars where their share has reduced, long-term bonds saw their issuance rise in the Oct-Mar borrowing plan. The 30-year bond will now make up 9.2% of the calendar, against 7.3% earlier. The rise in the share of the 40- and 50-year bond is marginal, rising to 8.9% and 9.9%, respectively.

Traders will also track the result of the INR-250-billion auction the RBI will conduct to sell gilts through open market operations at 0930-1030 IST. This is the final tranche of the INR-1-trillion OMO sales the central bank had announced for September. The central bank has offered to sell the 7.59%, 2029 bond, the 6.45%, 2029 bond, the 7.61%, 2030 bond, the 5.85%, 2030 bond, the 6.54%, 2032 bond, and the 7.26%, 2032 bond at the auction at 0930-1030 IST. 

Any significant movement in the rupee and swap rates will also lend cues, dealers said. The yield on the 10-year benchmark 6.94%, 2036 bond is expected to move between 7.00% and 7.18%, dealers said.

India Gilts: Recover most losses; 10-yr auction result in line with view

MUMBAI--1500 IST--Government bond prices recovered most losses after the cut-off price at the INR-340-billion gilt auction was in line with market expectations, dealers said. Traders who could not get their intended stock of the 6.94%, 2036 bond at its auction Friday likely bought bonds in the secondary market, which helped bond prices give up losses, they said. A fall in Brent crude oil prices and US Treasury yields during the day also supported bond prices Friday, dealers said.

The government had invited bids to raise INR 340 billion through the sale of the 10-year benchmark 2036 paper Friday. The auction saw aggressive bidding with INR-838.8-billion worth of competitive bids received, the full-auction result showed. Traders covered short positions and state-owned banks also likely bid aggressively, which helped the cut-off price at the auction, dealers said. State-owned banks likely bought INR-150-billion worth of the auction stock, they said. The Reserve Bank of India had set a cut-off price of INR 98.58 or a 7.1450% yield at the auction. This is slightly higher than an Informist Poll estimate of INR 98.57 or 7.1465% yield. The cut-off yield on the paper was the highest for a 10-year gilt since April 2024.

"Mostly it's (the auction cutoff price) at the expected level. People bid aggressively because there were a lot of shorts in the paper as well," a dealer at a private-sector bank said. "PSUs (state-owned banks) were also there, so good participation from them also supported the cut-off. The market has also moved after the result, because people want to cover shorts before prices go up further." 

Bond prices were also supported by an intraday fall in Brent crude oil prices and US Treasury yields, dealers said. Brent crude oil futures for November delivery fell below $105 for a brief period. However, prices did not sustain at those levels. Meanwhile, US Treasury yields fell from the day's high, which supported Indian bond prices. The yield on the benchmark 10-year US Treasury note was at 5.17% at 1500 IST, down two basis points from 0900 IST.  

The total turnover in the government securities market at 1500 IST was INR 423 billion, up from INR 363.35 billion at 1530 IST Thursday, data from Clearing Corp. of India Ltd. showed.

Traders will closely track developments in the war in West Asia, which could impact crude oil prices, as well as US yields and, in turn, Indian bond prices for the rest of the day. The yield on the 10-year gilt is seen in a range of 7.09-7.15% during the day, dealers said.  (Diksha Tripathy)

India Gilts: Remain dn; short covering to drive demand at 10-yr bond auction

MUMBAI-–1140 IST--Government bond prices remain sharply down as higher US Treasury yields and elevated Brent crude oil prices soured market sentiment, dealers said. Traders refrained from building aggressive positions ahead of the weekend as a potential peace deal between the US and Iran appears nowhere in sight, dealers said. The result of the weekly gilt auction is expected to lend cues to the market, dealers said.

Brent crude futures for November delivery were at $105.33 per barrel, slightly up from $104.90 per barrel at the end of Indian trading hours Thursday, and above the psychologically crucial level of $100 per barrel. The yield on the 10-year US Treasury note was at 5.18%, up 5 basis points from 5.13% at the end of Indian trading hours Thursday. The 10-year US Treasury yield rose 26 basis points in the current week, which kept traders cautious of building aggressive positions, dealers said. The total turnover in the government securities market at 1140 IST was INR 137.05 billion, down from INR 156.50 billion at 1130 IST Thursday, data from Clearing Corp. of India Ltd. showed.

Traders look forward to the result of the weekly gilt auction, where the government sold INR 340 billion worth of the 10-year benchmark 6.94%, 2036 bond. Some traders expect the large supply to weigh on its cut-off prices at the auction, while others expect demand for the bond to be firm at auction, dealers said. Traders are likely to cover around INR 100 billion–INR 150 billion worth of shorts at the auction, dealers said. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1140 IST showed trades worth INR 207.23 billion in the 6.94%, 2036 gilt, up from INR 184.75 billion Thursday.

"There are quite a lot of shorts on the paper, so short-covering demand will be there at the auction," a dealer at a private sector bank said. "Moreover, the yields at these levels are attractive, so public sector banks will definitely go for the paper (at the auction)."

Market participants, especially public sector banks, likely bought the bond at the auction as they considered the levels attractive, dealers said. The lower-than-expected cut-off fee set for primary dealers also signalled firm demand for the bond at auction, dealers said. Primary dealers were awarded a maximum fee of 0.54 paisa for this bond. The Reserve Bank of India is likely to set a cut-off of INR 98.57 or 7.1465% yield on the 6.94%, 2036 gilt at the auction Friday, according to the median of an Informist Poll. 
 

Some traders expect secondary market yields to ease slightly if the gilt auction outcome comes in line with expectations, dealers said. Traders do not expect the yield on the 6.94%, 2036 bond to rise and sustain above the crucial 7.14% mark. However, if it breaches that level, it could rise to 7.18%, they said. The yield on the 10-year gilt is seen in a range of 7.09-7.15% during the day, dealers said.  (Janwee Prajapati)

India Gilts: Sharply down on high US yields, Brent crude prices; volume low

MUMBAI-–0930 IST--Government bond prices opened sharply lower Friday, tracking an overnight rise in US Treasury yields, dealers said. Bond prices were also pulled down by higher Brent crude oil prices, which remained above $105 per barrel, dealers said. Traders refrained from placing aggressive bets ahead of the auction of the 10-year benchmark 6.94%, 2036 bond, which weighed on the volume Friday.

The total turnover in the government securities market at 0930 IST was INR 23.70 billion, down from INR 54.30 billion at 0930 IST Thursday, data from Clearing Corp. of India Ltd. showed. While some traders bought bonds when the yield on the 10-year benchmark bond remained near 7.13%, others remained cautious and avoided taking fresh positions before the auction. 

The government will sell INR 340 billion of the 6.94%, 2036 bond Friday. Demand at the auction is seen firm on short-covering and investor appetite with the highest yields on offer in the current financial year, dealers said. Traders will closely track the result of the auction, as the cut-off price on the paper may lend further cues to the market during the day.  

Trade volume was also impacted by lack of clarity over the US-Iran peace talks, dealers said. The uncertainty around the end of the war kept oil prices above $105 per barrel Friday. Brent crude oil futures for November delivery were at $105.53 per barrel at 0930 IST, up from $104.91 at the end of Indian gilt market hours Thursday. 

US yields also inched higher overnight, which weighed on Indian bond prices Friday, dealers said. The yield on the 10-year benchmark US treasury note was 5.19% at 0930 IST, up 6 basis points from 1700 IST Thursday. The selloff in the US market has intensified on concern that elevated energy costs, resilient economic growth, and higher government spending could keep inflationary pressures persistent. A further rise in US yields could push the yield on the 10-year 6.94%, 2036 bond beyond 7.15%, dealers said.   

Traders will closely track developments in the war in West Asia which could impact crude oil prices and US yields and, in turn, Indian bond prices. The yield on the 10-year gilt is seen in a range of 7.09-7.15% during the day, dealers said.  (Diksha Tripathy)

India Gilts:Seen dn as US ylds hit multi-year highs; 10-yr bond auction eyed

MUMBAI – Government bond prices are seen opening lower due to an overnight surge in US Treasury yields to multi-year highs, dealers said. Indian bond prices are also likely to face the heat of Brent crude oil trading above $105 per barrel amid lack of clarity over US-Iran peace talks, dealers said. The 10-year benchmark 6.94%, 2036 bond is likely to remain under pressure ahead of its auction later in the day, dealers added.

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 7.12% Friday and move between 7.05% and 7.15% during the day, dealers said. Thursday, it ended at INR 98.84, or 7.1067% yield. Traders expect the trading activity in the market to be sluggish ahead of the auction. The government will sell INR 340 billion of the 6.94%, 2036 bond Friday.

At the auction, demand for the 2036 paper is seen firm as traders who had placed short bets are likely to cover these positions, they said. State-owned banks are also likely to pick up INR 100 billion-INR 140 billion worth of supply at the auction, they said. The supply is likely to sail through on short-covering and investor demand at the highest yields on offer in the current financial year, dealers said. Traders will closely track the result of the auction, as the cut-off price on the paper may lend further cues to the market during the day.  

On the global front, elevated US yields and Brent crude oil prices are likely to weigh on the market sentiment Friday, dealers said. Global bonds remained under pressure after long-dated US Treasury yields rose to their highest level in more than two decades. At 0800 IST, the yield on the 10-year benchmark US Treasury note was 5.20%, up from 5.13% at the end of Indian gilt market hours Thursday. 

Oil prices, meanwhile, eased slightly from its peak early Friday after a volatile week, with markets balancing hopes of a potential US-Iran truce against renewed tensions in the region following the bombing of Saudi Arabia by Houthi rebels. The US and Iranian negotiators in New York are discussing a phased route out of the war that could involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade of Iran, Reuters reported, citing people familiar with the talks. However, the uncertainty around the end of the war kept oil prices above $105 per barrel. At 0800 IST, Brent crude oil futures for November delivery were at $105.81 per barrel, up from $104.91 per barrel at 1700 IST Thursday. Traders will track its movement during the day, they said. 

Traders also await the release of the borrowing calendar for state and central government bond issuances for the next quarter and the second half of the current financial year, respectively, Friday. The proportion of different bond tenures in the calendar will provide cues on the shape of the gilt yield curve, dealers said. Most traders expect little change in the Centre's plan compared with those in Apr-Sept, though bankers have put forth several preferences to the central bank. The RBI has held several meetings with market participants this month to discuss the Centre's borrowing calendar, they said. Some expect more supply of seven-year bonds, while others expect more 15-year bond supply, and still others expect more supply of three- to five-year bonds.  (Diksha Tripathy)

End

US$1 = INR 95.81

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Avishek Dutta

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